Dell announces 7,000 job cuts worldwide as competition bites

The world's second largest PC maker last night reported first-quarter profits above Wall Street expectations, and then announced a worldwide layoff equivalent to 10% of its global workforce. The computer giant said the cull of at least 7,000 of the company's 88,100 staff was forced due to an overall drop in sales and burgeoning production costs. The cuts are due to take place over the next year.

The company has been struggling with the falling price of PCs and competition from Hewlett Packard. It reported first-quarter profits of $759m (£385m), little changed from the $762m of the same period last year. Revenue rose to $14.6bn from $14.2bn.

Founder Michael Dell, 42, retook the CEO job in January after sales growth slumped and the company's past accounting came under scrutiny by federal regulators and prosecutors. He said the layoffs were essential if the company was to provide its customers with better value.

Dell has fought back by shaking up its management structure, revamping technical back-up for customers and launching in rapidly growing emerging economies such as China and Brazil. This year, in an attempt to reach the widest possible number of consumers, Dell broke from its long-standing practice of direct-to-customer sales and began selling PCs in the US through Wal-Mart stores.

However, Dell said the strategies were not enough to stave off the cutbacks. The company has big operations in the US, Europe and Asia. All will see job losses, but which regions are hit hardest is likely to depend on the local trading conditions and business and legal considerations. "While reductions in head count are always difficult for a company, we know these actions are critical to our ability to deliver unprecedented value to our customers now and in the future," Mr Dell said.

Savings from any layoffs likely will not improve the company's finances until next year at the earliest, said Philip Durell, senior analyst at The Motley Fool website.